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Fiscal Cliff Deal: Tax Benefits for Higher Education
Posted By Miranda Marquit On 02/04/2013 @ 12:03 pm In Education | 3 Comments
The recent fiscal cliff deal has gotten a lot of play related to the tax increases. The fiscal cliff deal (which only addresses tax issues and not spending issues) didn’t stop the payroll tax cut  from expiring, and it results in higher taxes for couples that are married filing jointly making $450,000 and singles making $400,000.
However, the news isn’t all higher taxes. The fiscal cliff tax deal also includes some tax breaks for higher education. If you are sending someone to college , here are some of the tax benefits that the fiscal cliff deal has in store for you:
Originally, the American Opportunity Tax Credit was supposed to be reduced in value to $1,900, and it was only going to be available for two years of college education per student. The fiscal cliff tax deal changes that. Now, the credit will remain at $2,500 for four years of school through 2017.
The American Opportunity Tax Credit  can be used to offset some of the cost of tuition and fees, and other qualified costs related to attending college. A credit is valuable because it’s applied to the amount you owe in taxes. It’s like a gift card that reduces the tax bill dollar for dollar.
There is a phase out for this tax credit. If you are married filing jointly, the phase out begins at $160,000. The phase out is $80,000 for those filing singly.
One of the tax benefits that many families have benefitted from is the above the line deduction for tuition and fees. You could deduct up to $4,000 in tuition in fees, reducing your adjusted gross income. However, the tax benefit expired with the year 2011. The fiscal cliff deal, though, brings it back retroactively for 2012 (so you can claim the deduction when you do your 2012 taxes), and allows it for 2013.
It’s important to realize, though, that you can’t deduct your tuition and fees if you are taking the American Opportunity Tax Credit. The deduction also isn’t a dollar for dollar reduction in taxes. Instead, your income is reduced. This can help you stay under phase out levels, or keep you out of a higher tax bracket in some cases. The phase out for this tax credit starts at $130,000 (married) and $65,000 (single).
In the past, some of the benefits of Coverdell Education Savings Accounts  were temporary, and had to be renewed regularly. The new deal makes some of these benefits permanent. First of all, you’re allowed to use the money from a Coverdell at any educational institution, including elementary and secondary schools. On top of that, the $2,000 contribution limit has been made permanent, rather than reverting to a $500 limit. Phase outs are higher, too, for married couples, starting at $190,000. Single filers maintain the phase out at $95,000.
Previously, the tax deduction for student loan interested was only good for five years. The fiscal cliff deal changes that and allows borrowers to deduct their interest for as long as they have the loan, up to $2,500. Phase outs start at $120,000 (married) and $60,000 (single).
(Photo: CollegeDegrees360 )
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 payroll tax cut: http://www.bargaineering.com/articles/expiration-payroll-tax-cut-cost.html
 sending someone to college: http://www.bargaineering.com/articles/what-will-college-really-cost-you.html
 American Opportunity Tax Credit: http://www.bargaineering.com/articles/american-opportunity-tax-credit-details.html
 Coverdell Education Savings Accounts: http://www.bargaineering.com/articles/saving-for-college-529-plans-coverdell-esas.html
 CollegeDegrees360: http://www.flickr.com/photos/83633410@N07/7658134764/
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